Market Correction Signals Bumpy Road Ahead: Risk Management Is Key
2023.12.21 03:22
Markets take the stairs up and the elevator down. That phenomenon was in full effect Wednesday when one afternoon of losses wiped out a week’s worth of gains.
Luckily, my regular readers saw this coming. :
The bulls won again on Monday, but that doesn’t mean smart money was chasing these overbought levels. In fact, smart traders are sitting on a big pile of profits they collected last week and are getting ready for the next big trade.
Maybe that’s shorting the reversion trade later this week. Maybe that’s sitting in cash until something more interesting happens in January. Either way, anyone expecting these big gains to keep rolling in clearly doesn’t understand how markets work.
These things are so predictable, yet every time we find ourselves in the middle of these situations, the average trader cannot help but think, “This time is different.”
Well, as Wednesday afternoon proved, the more things change, the more they stay the same.
While I was one of the first in line to buy the November rebound when that kicked off last , I will fully admit I didn’t anticipate the huge size of this rebound.
I was willing to stick through last week’s 4,600 breakout, but late last week was getting a little too rich for my blood, and I couldn’t help but start collecting some very worthwhile 3x ETF profits.
I was fully aware I was collecting profits too early, but since no one can consistently pick tops, that means we are left choosing between selling too early and holding too long.
Wednesday afternoon’s price action shows why I prefer being in cash when the next trade lands.
While everyone else was filled with dread watching their profits vanish, I was primed and ready to jump aboard the short bandwagon and profit from slow money’s pain.
I fully admit I sold the rally too early, but on days like this, I don’t mind.
As for what happens next, these are rarely one-day events, and it could get bumpy before it gets better. If you are not using trailing stops to protect your profits, this is a good time to start.
